Report shows A 41,3% Quarter-Over-Quarter Decline In Venture Investment In The Russian Market

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Rye, Man, and Gor Securities, an independent Russian investment company, has released their report on the venture-capital market in Russia for the second quarter of 2013 and the results are pretty uninspiring.

According to the report, venture-capital investment in the second quarter of 2013 in Russia fell 41,3% from the same period last year (47,7% year-over-year for the whole year), the number of deals completed also fell by 41,3% (75 to 53), funds invested only 13,1% of all seed capital (as opposed to 34% during the same period last year), and state-backed funds are projected to account for most seed-stage investments in the near-term.

The results were not completely bleak, however, as the firm notes that an increasing number of U.S. and Europe-based firms previously uninterested in investing Russian venture projects are taking an interest and the state-backed firms doing the majority of venture-capital investing encourage private firms to invest by offering public-private partnerships.

The cloud-technology market in Russia is projected to grow more quickly than the IT market as a whole and IT-sector companies obtained the lion’s share of venture investment, as they did in 2012.

Excluding deals over $100 million (74 million Euro), the authors state that $87 million (64,3 million Euro) was invested in 53 deals in the 2Q 2013, with 29 seed-funding deals reached, 16 investments in startups, 5 growth-stage deals, and 3 expansion investments. The size of the average deal was $1,6 million (1,19 million Euro). In contrast, $1,9 million (1,41 million Euro) was the size of the average deal and $149 million (110,2 million Euro) was invested during the same period last year.

Private funds dominated the investment sector, investing $44,9 million (33,2 million Euro), and they were followed by public funds, which invested $15,3 million (11,3 million Euro), PPP investing $13,9 million (10,3 million Euro), business angels investing $11,5 million (8,5 million Euro), and corporate funds investing $1,6 million (1,18 million Euro).

The e-commerce sector was certainly popular as the single-largest recipient of funding in the quarter. Firms in this sector obtained $31,6 million (23,2 million Euro), while firms in biotech received $6,3 million (4,66 million Euro), firms in industrial tech obtained $5,2 million (3,84 million Euro), firms developing mobile apps received $3,8 million (2,81 million Euro), and firms building cloud technology obtained another $3,8 million (2,81 million Euro). Companies in other markets obtained a collective $36,8 (27,2 million Euro).

The main conclusion drawn by the RMG is that, while American and European have increasingly taken an interest in Russia, they remain hesitant to invest due to the opacity of the Russian market. They argue that reliable information on deals and shares of capital acquired remains difficult to obtain and venture companies are frequently unwilling to disclose their financials and operational records. Further, they believe that the decline in capital invested by private funds in startups / seed companies will continue for the foreseeable future because investors will be unwilling to assume the risks that come with these investments.

In May, we had a post about 2 reports: one released by RVC and VCIOM and one released by RVC and PWC. Although you should take a look at the original post, the report released by RVC and PWC found that the overall volume of investments reached approximately 704,3 million Euro in 2012 and that the IT sector, again, hauled in 612,6 million Euro. That report was based on a year’s worth of investments, but this newly-released RMG seems to offer a much more negative outlook for the Russian VC market.Tweet

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Natasha Starkell

TwitterLinkedInFacebook Google+ Natasha Starkell is the founder and CEO of GoalEurope, advisory firm focusing on technology investment and software development in Russia and Eastern Europe. Prior to starting GoalEurope she has worked in the field of finance, mergers and acquisitions, corporate strategy and offshore outsourcing at Unisys Corporation in Switzerland and United Kingdom. She has an MBA degree from London Business School. She speaks Russian, English and German. She lives in Northern Germany.